Dropping the Dime: Risks of Giving Evidence to Canadian Securities Regulators
May 19, 2016
Canadian securities regulators often cooperate with their counterparts abroad due to the increasingly global nature of securities regulation. Canadian securities regulators have entered into several agreements or memoranda of understanding with foreign regulators to facilitate cooperation and exchange of information.
This cooperation raises an issue with respect to subsequent use abroad of evidence compelled by Canadian securities regulators. Witnesses in Canadian securities regulatory proceedings may not refuse to provide information on the basis that it could be incriminating, as can be done in the U.S. pursuant to the Fifth Amendment to their Constitution. If the Canadian regulator provides such evidence to U.S. regulators, the party that provided the evidence will not have the same protections as he or she would have had if the evidence was obtained directly by the U.S. regulators. The evidence could then be used against the party in U.S. proceedings.
DIFFERING APPROACHES TO SELF-INCRIMINATION
Both Canada and the United States recognize the principle against self-incrimination, but the principle operates differently in the two jurisdictions. In the United States, the principle against self-incrimination is protected by the Fifth Amendment, including the right to refuse to testify if doing so could be incriminatory. This right can be invoked in response to compelled testimony in connection with a civil or criminal investigation.
The principle against self-incrimination is also protected by the Canadian Charter of Rights and Freedoms (Charter). In criminal proceedings, the accused may not be compelled to be a witness for the prosecution. Moreover, the testimony of any witness in any proceedings cannot be used to incriminate the same witness in any other proceedings.
However, the principle against self-incrimination is not absolute in Canada. Its application is more limited in a regulatory context. During an investigation, Canadian securities regulators have the power to compel an individual to attend an examination. During such an examination, the witness will not be entitled to rely on the principle against self-incrimination to decline to answer questions.
APPLICATION TO SECURITIES REGULATION
In the context of securities regulation, these differing approaches can lead to issues when Canadian securities regulators share information with the U.S. Securities and Exchange Commission, which occurs regularly.
The individual testifying as a witness in Canada may be doing so under the assumption that their testimony will not be used against them in different proceedings. However, once the individual’s statements make their way to the United States, having not had the option to remain silent and with no subsequent immunity, these statements can arguably be used in criminal proceedings such as prosecutions by the United States Department of Justice.
This dilemma was addressed in the recent decision of the Court of Appeal for Alberta (Court) in Beaudette v. Alberta (Securities Commission) (Beaudette). Like other provincial securities legislation, the Securities Act (Alberta) gives the Alberta Securities Commission (ASC) the authority to compel evidence and share information with law enforcement agencies and other governmental or regulatory authorities in Canada and abroad. In Beaudette, the appellant brought a constitutional challenge contending that those powers, when invoked in combination, violate the Charter right to avoid self-incrimination, on the grounds that the ASC could share the compelled evidence with agencies that could use it in a subsequent criminal or civil proceeding abroad.
The Court did not directly address the issue on the basis that Charter protections do not extend to something that may happen in the future. The Court noted that the Charter is not prospective and is not engaged before the right itself has been infringed, as it had not yet been in Beaudette.
However, the Court did include some indication as to its thinking on the matter. First, it noted that the objective of securities regulation could not be achieved without such broad powers — another example of the importance placed on (and arguably deference given to) securities regulators by the Courts. The Court’s reasoning also suggests that a degree of deference to the principle of comity of nations. Specifically, the ASC said “the fact that evidence might be useful in the courts of a foreign rule of law democracy with which Canada has friendly relations may become easier for that foreign state’s authorities to locate or acquire because of the operation of a Canadian law does not make the Canadian law per se the author or sponsor of an infringement of the Charter.” That said, the Court did leave open the possibility of a judicial review of any decision by the executive director of the ASC should information ever be shared in such a way as to engage the issues raised in Beaudette. Leave to appeal to the Supreme Court of Canada has been sought.
Cross-border information sharing occurs frequently. Persons facing requests by provincial securities commissions must be cognizant that their testimony could potentially be used against them in proceedings in the U.S., including criminal proceedings, and should obtain legal advice accordingly.
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